Trade Reporting; all at sea
You would have though that trade reporting would be a simple
thing with the regulatory organisation specifying what they wanted reported, by what medium, by whom and when but this is
all too simplistic for today's markets. A discussion with one of the UK's top firm's compliance officers this
week opened my eyes to the sheer lunacy of regulatory reporting in the 21st Century.
I do have some
experience of electronic trade reporting during the eighties and early nineties, when the London Stock Exchange was the depository
of my firms trade reports and where they were then passed on to the end regulator the SAF who later became the FSA. At least
with this arrangement the reporting rules were relatively obvious if not totally clear when two sell side firms were dealing
directly with each other. The LSE had reporting rules covering each type of transaction and if there was a dispute it was
reasonably agreed and organised. What of today?
Well for some reason that still escapes me the LSE was replaced
by the FSA as the primary reporting depository. This was really the all seeing eyes and expertise of the LSE operating as
a central market being replaced with a certain blindness by the FSA. It was not all the FSA's fault though, as poor salary
levels did not enable them to attract people with as sufficient industry knowledge, experience and expertise of those at the
These inexperienced people were supported by technology less than, shall we say, modern. In the process there
were a number of different types of medium springing up to carry the trade reports. Today we also find a growing list of MTFs
and other trading venues that further complicate the picture.
My friend in the City is an experienced compliance
officer who has been involved in trade reporting for many years, who is now often left scratching their head to work out who
has to report, the firm or the counterparty/agent. This often leads to heated arguments with agents and counterparties on
whom or what is reported. Different rules per market and product add a further layer of complication and confusion.
MiFID has hardly been helpful in making trade reporting a simple operation. The chances are that as the market changes and
products increase in complexity the trade reporting process will get even more difficult to achieve and compliance breakdowns
will become a certainty.
Given the complexity it seems unfair for the FSA to sanction any firm should they be found
to be failing in their reporting obligations. Already firms are reporting and be dammed, rather than not report, seeking the
least route of resistance for noncompliance. So where does the fault lie?
The main fault has to be with the FSA
who need to clarify what it is they want reported with clear rules that allow the market to understand and comply. They also
need to have more astute and subtle technology that can take high volume electronic reports and categorise them. They would
then have a chance of detecting where market transgressions and abuse could be happening. In addition they should offer higher
salaries to attract the quality City professionals they need.
The introduction of MiFID has forever created a
wholesale market where multiple trading venues will be offering the retail market a choice of execution and price. It still
remains a question how long the new trading venues will exist until they gravitate back to their larger Stock Exchange competitors
or consolidate themselves. Whatever the eventual picture looks like for the trade reporting industry the central reporting
depository must set an electronic standard per market and product which is simple to operate and easy to understand. The FSA
could resurrect their XBRL project to fall in line with other global markets to achieve this.
It's not often
that one can say that the market of twenty years ago is better than today's but in trade reporting the industry is all
at sea having shot itself in the foot and regressed to a situation which is unbelievably worse.